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Gift Funds and Homebuying: What You Should Know

One of the biggest barriers that many first-time homebuyers face isn’t necessarily finding the perfect home – it’s coming up with the down payment. That’s where gift funds can help you to turn your dream of homeownership into reality.

What Are Gift Funds?
Simply put, gift funds are financial contributions made by other parties, such as family members, that you can use for your down payment or to help with closing costs. The word “gift” is important because it denotes that it’s not a loan and there’s no expectation of repayment.

In general, acceptable gift donors for most loans include your family members by blood or marriage (closely related in most cases like mother, father, aunt, uncle, grandparent, spouse, etc.), fiancés, employers, charitable organizations, or government entities.

The FHA (Federal Housing Administration) also allows gifts from other donors. For example, a close friend who has a clearly defined interest in you, the borrower, or a charitable organization.

Gift funds must come from acceptable sources such as stocks, saving bonds or savings accounts. Gift funds require documentation to ensure that the donor’s funds meet all approved criteria, and verification that the gift funds left the donor’s account and were entered into your bank account.

Cash is not an acceptable way of giving funds because underwriters aren’t able to document the source.

If you think that gift funds may be part of your homeownership plans, keep the following in mind:

  • You cannot receive gift funds from anyone who’s invested in the transaction of the property such as the seller, builder, lender, broker or real estate agent, or any other person associated with the property
  • Gift funds cannot be used on investment properties
  • How much money you’re allowed to receive depends on the type of mortgage loan you’re getting
  • For some loan types, you, the borrower, might be required to bring a certain amount of your own funds to the loan to qualify (minimum borrower contribution)
  • Funds cannot be used to meet reserve requirements that may apply to the loan

Gift funds rules vary so it’s best to first talk with your local expert Loan Originator.

Contact an Envoy mortgage loan professional to learn more about gift funds or other down payment assistance programs, and to discuss which loan program may be right for you.


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